“Capitulation”: Nomura Explains What Is Behind The Market’s “Freak Out”

Tuesday, November 20, 2018
By Paul Martin

by Tyler Durden
Tue, 11/20/2018

On Monday morning, when the market’s moves were still relatively orderly, Nomura’s Charlie McElligott made a prescient observation why momentum stocks were getting slaughtered, and why the “value to growth” rotation was about to leave hedge funds with even greater losses.

To those who listened and unwound, congrats, because on Tuesday, with the Dow down almost 600 points at its lows, McElligott writes that the cross-asset markets de-risking continues, which somewhat surprisingly is occurring in conjunction with a collapse in market expectations for 2019 Fed implied hikes, down to just 31.5bps.

This is a clear shift in market sentiment, because even as the market prices in a dovish Fed, stocks are getting crushed.

This “Best is Behind Us” / “Fed has tightened us into a slowdown” view is entrenching itself alongside the weekend escalation of Trade War Cold War between China and US, which is clearly now bleeding into the supply-chain and broad sentiment, the Nomura strategist writes today and notes that signs of capitulation are visible across the asset spectrum, as “VaR-down” behavior becomes apparent via new local- and multi-year lows/wides being made, with the credit blow out accelerating and HYG down for 8 days in a row (the record is 9).

>VaR-down with liquidation of “longs” and 100-500bps of outperformance from shorts:

The Rest…HERE

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